IRS Hot On The Trail Of Hidden Bank Leumi & Other Israeli Accounts

It’s no secret that the IRS has been snooping around Israeli banks for quite some time. Although most Americans think of Switzerland when thinking offshore accounts, most foreign bank accounts are in places like Israel, India and Canada. A recent indictment in California shows just how serious the IRS is about locating hidden accounts.

Americans move money offshore for many reasons. Having a bank account outside the United States is entirely legal as long as the interest is properly reported and the account disclosed. Federal law requires most U.S. taxpayers with foreign brokerage or bank accounts to file an annual disclosure called an FBAR or Report of Foreign Bank and Financial Accounts. The penalties for not disclosing one’s offshore holdings include huge penalties ($100,000 or 50% of the account balance for each year the accounts were unreported) and prison.

Earlier this month, the U.S. Department of Justice unsealed indictments against three tax preparers doing business as United Revenue Service. URS operates throughout the United States. Prosecutors say that the company helped wealthy Americans open accounts in Israel, accounts in which no FBARs were filed.

To further conceal the true identity of the account holders, the IRS says that company helped customers set up nominee corporations in Belize. A nominee company is usually a shell created for the sole purpose of owning a bank account. If regulators look, all they see is that a company in Belize does business with an Israeli bank.

Unfortunately for account holders, banks are being required to do more due diligence to ascertain the beneficial owners of corporate accounts. That means the chances of getting caught are increasing.

More importantly, the IRS has been targeting lawyers, accountants and individual bankers over the last several years. The plan is to go after the people that help set up these nominee corporations and foreign accounts. Once indicted, most of these folks agree to turn over the list of their customers in exchange for a reduced sentence.

If you were a customer at United Revenue Service / URS or have an unreported account at Bank Leumi, you must act immediately. The IRS maintains a first contact policy meaning the IRS generally won’t prosecute if you come forward before they contact you. If you get the knock on the door or notice in the mail first, however, all bets are off.

The indictment against the URS preparers doesn’t name Bank Leumi but a description of the bank makes it pretty clear that it is Bank Leumi. The indictment also says that the company helped people open accounts at another unidentified Israeli Bank.

If you have unreported accounts anywhere in the world, there is still time to come into compliance and avoid huge penalties and possible jail. Taxpayers who have not yet been contacted by the IRS can avail themselves of the current amnesty program known as the Offshore Voluntary Disclosure Program, often called “OVDI.” OVDI involves fixed penalties, no audit and no prosecution.

For those who are willing to undergo an audit, a more traditional disclosure may be the better route if you can demonstrate that your failure to file FBARs was not willful. We recommend consulting with a skilled tax attorney or CPA familiar with offshore reporting requirements to determine what is the best route.

The tax attorneys at Mahany & Ertl have helped dozens of taxpayers with a wide variety of tax problems including unreported offshore accounts, criminal tax investigations and foreign corporate and partnership filings. If you have questions about the current FATCA reporting rules or think that you may be an amnesty candidate, give us a call. All inquiries are protected by the attorney – client privilege.

For more information contact attorney Bethany Kroes at (414) 223-0464 or by email at *protected email*